Ford boosts electric vehicle spending by US$20 billion, setting sights on Elon Musk's Tesla

One of Ford's electric vehicles
The company's EV unit will be run separately from its legacy combustion engine business. Photo credit: Getty Images

Ford said it will boost spending on electric vehicles to US$50 billion (NZ$73.7 billion), up from the previous US$30 billion (NZ$44.2 billion), through 2026 and run its EV unit separately from its legacy combustion engine business, in a move aimed at catching industry leader Tesla.

The reorganisation and additional investment comes as Chief Executive Jim Farley bets aggressively on the company's electrification strategy.

Farley said Ford plans to build more than two million EVs in 2026, about one-third of its annual global production, with EVs rising to 50 percent of its total volume by 2030.

The company does not expect to make a profit on its EV business until the next-generation models begin production in 2025, according to Chief Financial Officer John Lawler.

Reuters was first to report that Ford planned to separate its main vehicle efforts into two separate businesses in order to accelerate its electric-vehicle efforts.

Although the EV business, named Ford Model e, will be separated from the company's internal-combustion engine (ICE) unit, Ford Blue, the two divisions will share technology and "best practices", the automaker said.

The two businesses, along with commercial-vehicle unit Ford Pro, will report separate financial results by 2023, it added.

"We view the news positively as it has strong industrial logic, and it will enable investors to separately value the money-losing EV business," Wells Fargo analyst Colin Langan said in a note.

Barclays auto analyst Brian Johnson said in a note titled "Reorganisation not restructuring" that Ford's announcement suggests it is "likely to accelerate its progress towards a BEV future - but not to a near-term spin".

Doug Field will lead Ford Model e's product development as chief EV and digital systems officer, and Lisa Drake will head EV industrialization for the unit.

Farley's move stops short of addressing calls from some investors who have pushed Ford and General Motors to spin off their EV operations as a way to extract the full value of those businesses.

Industry analysts, however, said that with the announcement, Ford would be setting the table for a possible spinoff of its EV unit down the road.

Ford said it hoped to cut structural costs of up to US$3 billion in its ICE business, but did not say if that effort would involve reducing headcount. Farley also said the EV unit will need to spend "billions" to secure critical raw materials for batteries as EV volume ramps up.

"We need the ICE business to generate cash and the EV business to focus on innovation," Farley said.

He had previously said that his management team believed the automaker's EV and ICE businesses are underperforming on an earnings basis. read more

Ford said it expects to spend US$5 billion on EVs this year, a two-fold rise over 2021.

Elon Musk had wanted to use Model e for the name of its third car, after calling the first two Model S and X, indicating they would spell 'SEX'.

Ford put a stop to that, with the companies agreeing amicably that Tesla would not go ahead with the name.

Ultimately, Musk decided to name the third car the Model 3 instead.

Reuters / Newshub